Look At Amazon's Brutal Tactics In Its War Against Book Publishers (AMZN)

Jim Edwards

Sunday

May 25, 2014 at 4:31 PM

Late last week, Amazon removed pre-order sale buttons from books being sold by the publisher Hachette, and began informing customers that delivery times for some Hachette books will now take weeks.

It's strange behavior for a company that prides itself on its customer focus. Suddenly, if a reader wants to buy a book by J.K. Rowling, Amazon is no longer the best place to go.

Amazon's customers will temporarily suffer some inconvenience as the two companies argue over contractual terms for the sale of Hachette's ebooks. Amazon controls up to half of all book sales in the U.S. It controls 65% of electronic book sales, but probably only a minority of paper book sales.

Because Amazon sells both Kindles and ebooks, and because ebooks are much easier and cheaper to sell than regular books, Amazon has an obvious incentive to shift as much of the book market to its ebooks as possible. If paper books and the publishing houses that print them have to die, so be it.

That is why Amazon is playing hardball.

Tempers are flaring. Dave Cullen, one of the authors affected, recently tweeted, "God, how I hate Amazon, now more than ever, as they screw my book."

Longtime observers of Amazon know that this is typical behavior for the company when it comes to publishers. Some in the industry regard Amazon as a bully or a despot, as it screws with the livelihoods of people whose only crime is to try and make a living selling books. Most people think Amazon has been helpful to publishers, because it is now so easy for anyone to find any book about anything. But few know that publishers have to pay Amazon between 5% and 7% of their sales as "co-op fees" or marketing development funds. Amazon doesn't just take a 30% cut of the sale — large publishers have to pay Amazon simply to make their books available on the site.

Amazon, however, believes it is bringing some much-needed rationality to a business that is riddled with inefficiencies and waste. Amazon's reshaping of the book biz is simply the natural order of things. Founder Jeff Bezos once told Charlie Rose, "You know, people can complain about that, but complaining is not a strategy. Amazon is not happening to book selling; the future is happening to book selling."

Amazon declined comment when reached by Business Insider.

To give you an idea of how Amazon thinks about publishers, read this long story in the New Yorker. Here's the key passage:

Amazon executives considered publishing people “antediluvian losers with rotary phones and inventory systems designed in 1968 and warehouses full of crap.” Publishers kept no data on customers, making their bets on books a matter of instinct rather than metrics. They were full of inefficiencies, starting with overpriced Manhattan offices. There was “a general feeling that the New York publishing business was just this cloistered, Gilded Age antique just barely getting by in a sort of Colonial Williamsburg of commerce, but when Amazon waded into this they would show publishing how it was done.”

... Brad Stone describes one campaign to pressure the most vulnerable publishers for better terms: internally, it was known as the Gazelle Project, after Bezos suggested “that Amazon should approach these small publishers the way a cheetah would pursue a sickly gazelle.” (Company lawyers later changed the name to the Small Publisher Negotiation Program.)

This has been going on for years. Generally, publishers hate the way Amazon offers ebooks for such cheap prices because it cannibalizes their hardback book sales, which can cost $20 or more. Amazon is so aggressive at pricing ebooks cheaply that it often sells them for less than it cost to buy them wholesale from the publisher. Publishers believe their profits will whither if Amazon trains customers to demand prices as low as $9.99 for all books.

Here are a few of Amazon's more imaginative high-pressure strategies:

Amazon sometimes raises the prices of books for small publishers who don't have enough market power to negotiate otherwise. Authors of obscure academic titles say that selling their books cheaply helps them make sales; when prices stay high, they don't sell at all. (Amazon denies this: "We are actually lowering prices," the company has said in the past.)
Amazon once sent small music publishers non-negotiable contracts. A condition in the proposed contract was that the contract literally could not be negotiated before it was signed.
Some of Amazon's independent merchants believe that Amazon screws them out of their search rankings. When companies sell stuff through Amazon, their Amazon page rides high in search result listings. If the merchant decides to do business elsewhere, their old page cannot be deleted, the merchants say, and it sits there like an empty shelf, sucking up all the SEO that ought to go to the merchants' more current offerings.
In a previous contract dispute with MacMillan Amazon deleted the "buy" button next to all MacMillan's books on its site.
Amazon did the same thing — deleted the buy button — next to titles from Melville House, after the boss of that company criticized Amazon in a story for Publishers Weekly.
And Amazon once told small publishers that if they sold e-books through Apple their titles would be banned from Amazon.
Amazon has a policy of banning its merchants from selling their products cheaper elsewhere — even their own web sites. That practice was recently made illegal in the U.K.

Of course, publishers are no angels either. The bosses at Hachette, HarperCollins, MacMillan, Penguin, and Simon & Schuster were the people who had secret meetings in which they conspired with Apple (and its competing iBookstore) to fix the prices of ebooks, and to use that leverage against Amazon.

It is not an exaggeration to say that the future of reading is at stake. In many towns, there is no longer a bookstore. For a vast section of the reading public, Amazon is it. Ultimately, Hachette will be faced with a choice: Accept Amazon's terms or sell its books elsewhere. If Hachette declines, Hachette's authors and customers will wonder why they're bothering with a publishing house that can't sell a single book in the biggest bookstore on earth, and Hachette will eventually die.

Even if you're an Amazon fan, that should be a scary thought.

See Also:

E-COMMERCE AND THE FUTURE OF RETAIL: 2014 [SLIDE DECK]Amazon, eBay, And Wal-Mart Are The Best Examples Of How Retailers Can Win On MobileJeff Bezos Explains Why He Keeps Amazon's Plans Hushed Up

SEE ALSO: How Steve Jobs, Rupert Murdoch and Stephen King Worked To Fix Ebook Prices

SEE ALSO: Amazon Pays Its Staff Up To $5,000 If They Quit — No Strings Attached

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